ACCA - P7 Advanced Audit And Assurance (INT) - Passport ATC - 2009
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RULES OF PROFESSIONAL CONDUCT AND PROFESSIONAL APPOINTMENT
Accountancy Tuition Centre (International Holdings) Ltd 2009 0321
Calibre and fit of proposed senior team members.
Personal rapport – “chemistry”.
Standing of the firm.
Ability to add value to the business.
Competitive fees – fair, value for money.
Tendering process (firm)
Treat as a full project – project manager, project team,
project planning &control procedures, risk analysis .
Ethical, business and quality assurance matters must be
initially considered, e.g. size and nature of enterprise,
technical, timing and human resources to service, cost
of investment/servicing and expected return; potential
conflicts of interest with current client base; fee
limitations (e.g. 10%, 15%); reputation of enterprise
etc.
Presentation “checklist” would cover:
Familiarisation process with client – knowledge of
the business, control systems, business risks.
Prepare initial audit approach for client.
Prepare outline time and fee budgets.
Prepare presentation team, and if different, client
team. The client team should be involved in the
presentation as it is important to establish the
“chemistry” with the client from the beginning.
Plan the bid document (this would basically try to
match the expected selection criteria – as above –
used by the client). Ensure this is professional and
matches the expectations of the client – a full
glossy brochure may “turn off” some clients as
being expensive and unnecessary (understand the
client!)
Plan the presentation – low key or “bells and
whistles”. Full rehearsals are critical including a
stand-in client board, anticipating questions,
smooth use of technology (e.g. Power Point
presentation), contingency plans for what may go
wrong on the day (e.g. illness, technology failure)
etc.
After the actual client presentation, fully debrief and
review. If unsuccessful, ask client for a critical
assessment of whole tendering process. Apply lessons
learnt for next client tender.
REGULATORY ENVIRONMENT – MONEY LAUNDERING
Accountancy Tuition Centre (International Holdings) Ltd 2009 0401
BACKGROUND
Money laundering
Money laundering is the process by which criminals
attempt to conceal the true origin and ownership of the
proceeds of their criminal activity allowing them to
maintain control over the proceeds and, ultimately,
providing a legitimate cover for their sources of income.
FATF
The Financial Action Task Force on Money Laundering
(FATF) is an inter-governmental body which sets
standards, and develops and promotes policies to
combat money laundering and terrorist financing.
Their policies cover:
Legal systems including the scope of the criminal
offence of money laundering;
Measures to be taken by financial institutions and
non-financial businesses and professions to prevent
money laundering and terrorist financing,
including:
− customer due diligence (CDD) and record-
keeping; and
− reporting of suspicious transactions and
compliance to a external financial
intelligence unit (FIU)
Institutional and other measures necessary in
systems for combating money laundering and
terrorist financing including transparency of legal
persons and arrangements;
International co-operation including mutual legal
assistance and extradition.
OFFENCES AND PENALTIES
Principal offences (under UK legislation)
Failure to appoint a Money Laundering Reporting
Officer.
Failure to implement internal procedures to comply
with the legislation, including the provision of training.
Failure to undertake verification of identity of all new
clients before commencing a business relationship.
REGULATORY ENVIRONMENT – MONEY LAUNDERING
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Obtaining, concealing, retaining or investing funds or
property or providing assistance to any person to do so,
if members know or suspect, or have reasonable
grounds to know or suspect, that those funds or property
are the proceeds of criminal conduct or terrorist
funding.
Failure to report any knowledge or suspicion (see
below) as soon as practicable that such activities
(money laundering) are being carried out, or fail to
make such a report when there are reasonable grounds
for knowing or suspecting that such activities are being
carried out (“a suspicion report”);
Failure to report a belief or suspicion of terrorist money
laundering in the course of their trade or profession;
Doing or disclosing anything that might prejudice an
investigation into such activities (e.g. “tipping off”).
Proceeding with a transaction without the consent of the
relevant authority following the submission of a
suspicion report in accordance with a member’s firm’s
internal procedures.
Failure to comply with a direction of the relevant
authority not to proceed with a transaction or business
relationship.
Failure to maintain records in accordance with
legislative requirements.
Knowledge or suspicion
Knowledge is likely to include:
actual knowledge;
shutting one’s mind to the obvious;
deliberately refraining from making inquiries;
deliberately deterring a person from making
disclosures;
knowledge of circumstances which would indicate
the facts to an honest and reasonable person and
failing to make reasonable inquiries which such a
person would have made.
Tipping-off
The offence of tipping-off occurs when an individual
who has knowledge or suspicion, makes a disclosure to
a third party (e.g. the suspected individual or entity)
which is likely to prejudice a terrorist or money
laundering investigation.
REGULATORY ENVIRONMENT – MONEY LAUNDERING
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In certain cases, non-disclosure and non-action may be
effective tipping off, e.g. not carrying out a client’s
instructions that is effectively a money laundering
operation, may be sufficient to put them on guard.
Professional duty of confidence
Accounting professionals (e.g. ACCA members) will
not be in breach of any professional duty of confidence
if they report, in good faith, any money laundering
knowledge or suspicions to the appropriate authority.
Statutory provisions give protection against criminal
action for members in respect of their confidentiality
requirements. This protection applies even if the
suspicions later prove to be groundless, provided that
the suspicion reports were originally made in good
faith.
PREVENTATIVE MEASURES
Internal controls and policies
Internal controls and policies should be established:
to ensure that anyone who suspects money
laundering knows how to report this information to
their MLRO; and
to provide the MLRO with the means by which the
reasonableness of the suspicion can be judged and
thereby assess which suspicions should be reported
to the appropriate authority.
Client acceptance procedures should include:
identification procedures; and
gathering “know your client” ( “KYC”)
information, including:
the client’s expected patterns of business;
its business model; and
its source of funds.
Money laundering reporting officer (MLRO)
The MLRO should have a suitable level of seniority and
experience (e.g. one of the principals of an accountancy
firm).
The MLRO is responsible for:
receiving and assessing money laundering reports
from colleagues; and
making reports to the appropriate authority on a
standard disclosure form.
REGULATORY ENVIRONMENT – MONEY LAUNDERING
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Record keeping
All client identification records together with a record
of all transactions, in a full audit trail form, must be
maintained.
Records of transactions must be kept in a readily
retrievable form for a period of at least five years
following the completion of the transaction (or series of
transactions).
Client identification
This requirement, to verify the identities of all clients, is
mandatory.
Verification must be achieved and documented before
any work is undertaken. Work cannot commence with
the intention and expectation of fulfilling this obligation
at some later date.
Sufficient knowledge of a client must be obtained (and
kept up to date) to be able to identify that which is
unusual and/or suspicious.
Suspicion
It is impossible to define suspicion. A suspicious
transaction or situation will often be one which is
inconsistent with the client’s known legitimate business
or personal activities. The key to recognition is to know
your client (KYC).
Examples of potentially suspicious transactions include:
unusually large cash deposits;
frequent exchange of cash into other currencies;
a transaction where the counter-party to the
transaction is unknown;
any activity inconsistent with the normal business
activity;
any activity involving off-shore business
arrangements where there is no clear business
purpose underlying such arrangements.
Risk factors include:
An account holder who wishes to:
− associate secrecy with a transaction (e.g.
booking it in the name of another person or
business where the beneficial owner is not
readily apparent);
− route transactions into or through a
jurisdiction or financial institution with
inadequate customer identification practices;
REGULATORY ENVIRONMENT – MONEY LAUNDERING
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− route transactions through several
jurisdictions or financial institutions without
any apparent purpose other than to disguise
the nature, source, ownership or control of
the funds;
− use accounts at a central bank or other
government-owned bank or government
accounts as the source of funds of a
transaction.
A rapid increase/decrease in the balance in an
account that is not attributable to fluctuations in the
underlying market value of investments held.
Frequent or excessive use of funds/wire transfers in
or out of an account.
Wire transfers that do not provide information of
the beneficial owner of an account or the originator
of the information when such information is
expected or required.
Large currency or bearer instrument transactions.
Repeated deposits or withdrawals just below the
monitoring and reporting threshold on or around
the same day.
High value deposits or withdrawals not
commensurate with the type of account or what is
known and documented regarding the legitimate
wealth or business of the account holder.
A pattern that after a deposit or wire transfer the
same (or nearly the same) amount is wired to
another financial institution (especially one that is
offshore or in a “secrecy jurisdiction”).
A frequent minimal balance or zeroing out of an
account for purposes other than maximizing the
value of the funds held in the account.
An inquiry by or on behalf of an account holder
regarding exceptions to the reporting of suspicious
transactions.
Educating and training all staff
Relevant individuals must be provided with training on:
how to report to the MLRO,
how to identify clients;
how to recognise and deal with situations that may
involve money laundering;
the main money laundering offences; and
REGULATORY ENVIRONMENT – MONEY LAUNDERING
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the business’s procedures to forestall and prevent
money laundering, including identification, record
keeping and reporting procedures
“Professional clearance” letters
If suspicion has been (or may be) reported, businesses
and individuals need to be cautious in responding to
“professional clearance” letters.
It is recommended that businesses and individuals do
not respond to questions in professional clearance
letters concerning either:
their satisfaction as to the identity of an entity or
individual; or
whether any report of suspicion has been made, or
contemplated.
ANTI-MONEY LAUNDERING PROGRAMME
Basic elements
The basic elements to be considered when designing an anti-
money laundering program include:
Dedicated resources;
Written policies and procedures;
Comprehensive coverage;
Timely escalation and resolution of matters;
Explicit management support;
Sufficient training and education;
Regular review/audit of the program.
QUALITY CONTROL PRACTICES AND PROCEDURES
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QUALITY CONTROLS FOR FIRMS THAT
PERFORM AUDITS AND REVIEWS OF
HISTORICAL FINANCIAL INFORMATION (ISQC 1)
General
Reasons for the need of quality controls include:
To achieve audit objectives.
To operate effectively, efficiently and
economically.
To avoid disputes with clients and minimise risk
of litigation.
To provide a professional service to clients.
To ensure regulatory body visits proceed
smoothly.
To ensure staff are monitored and controlled.
To help identify training needs at all levels.
To ensure staff appraisal systems operate
effectively at all levels.
Firm wide level
Procedures designed to provide with reasonable
assurance that the firm and its personnel comply with
professional standards, regulatory and legal
requirements.
Audit reports issued by the firm or engagement partners
are appropriate in the circumstances
To ensure that ALL audits (and assurance assignments)
are conducted in accordance with ISAs, relevant
national standards, practices, regulatory and legal
requirements.
Elements include:
leadership responsibilities for quality within the
firm (“the buck stops here”)
ethical requirements (Code of Ethics, staff
declarations, identify and deal with threats to
independence, senior staff rotation)
acceptance and continuance of client relationships
and specific engagements (the evaluation of
prospective and existing clients, integrity, ability
to act)
QUALITY CONTROL PRACTICES AND PROCEDURES
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human resources (recruitment, training, career
development, performance reviews, technical
standards, professional competence, commitment
to ethical, legal and regulatory standards)
assignment of engagement teams (ensuring audit
work is assigned to proficient personnel)
engagement performance (briefing, supervision,
review)
consultation (internal and external with those of
appropriate expertise, e.g. to resolve difficult or
contentious issues)
engagement quality control review (hot reviews of
all listed and high risk assignments)
monitoring ( reasonable assurance that quality
control works – cold reviews and audit regulation
reviews)
QUALITY CONTROLS FOR AUDIT WORK (ISA 220)
ISA 220 basically takes the requirements of ISQC 1 and
applies them at the level of the individual audit
engagement partner takes leadership
responsibilities
firm and audit staff are independent of client and
have complied with all ethical requirements
acceptance review carried out (e.g. integrity of
client, ability to act, engagement letter)
engagement team has appropriate abilities and
competence
appropriate direction, supervision and review
planned and applied
consultation undertaken and correctly applied and
recorded
engagement review planned and actioned
Assignment level
Quality control procedures appropriate to the individual
audit should be implemented, in the context of the
firm’s general policies and procedures (ISCQ 1).
Primarily based around direction, supervision and
review.
QUALITY CONTROL PRACTICES AND PROCEDURES
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Direction
Informing assistants of their responsibilities, the
objectives of the procedures they are to perform and the
matters (e.g. nature of the business, risk areas, specific
problems) that may affect the nature, timing and extent
of audit procedures.
May be given through the audit programme, time
budgets and the overall audit plan. Face to face
briefings and specific planning memoranda should also
be considered.
Is ongoing and will take place at the beginning of an
audit and at the beginning of a new element of work for
assistants.
Supervision
The monitoring of the assignment progress to consider
whether:
assistants have the necessary skills and
competence;
assistants understand the audit directions;
work is being carried out in accordance with the
overall audit plan and the audit program.
Ensures that the appropriate senior team member
becomes informed of and addresses significant
accounting and auditing questions (e.g. by modifying
the audit program).
Ensures the resolution of any differences of
professional judgment between personnel.
Review
Work performed by each assistant needs to be reviewed
by personnel of at least equal competence to consider:
work performed is in accordance with audit
program;
work performed and results obtained are
adequately documented;
all significant audit matters have been resolved or
are reflected in audit conclusions;
objectives of audit procedures have been achieved;
conclusions expressed are consistent with the
results of the work performed and support the
audit opinion.